3i shutters CMF&Z

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In January, Sean Bisceglia unveiled Chicago-based 3i L.L.C., billed as b-to-b’s answer to multinational advertising holding companies such as Omnicom and WPP Group. The company launched with the acquisition of CMF&Z Marketing Communications.

In September, Bisceglia confirmed that he had closed CMF&Z. "We gave it eight months, and, to be honest, we probably gave it eight months too long," he said of the Des Moines, Iowa-based agency, which opened in 1939.

In the world of b-to-b marketing communications, news of CMF&Z’s demise has kindled speculation about the remnants of the venerable agency, about the future of Bisceglia’s 3i and about the viability of building a nationwide network of b-to-b agencies.

But Bisceglia remains optimistic and plans to forge ahead with his company. "We are still extremely excited and bullish on our original vision," he said.

Bisceglia describes 3i’s acquisition of CMF&Z as a turnaround operation. "When we bought it, we knew it was a distressed asset," he said. "The debt load was too large. The challenges were a lot greater than we anticipated."

CMF&Z’s debt was about $2 million, Bisceglia and others confirmed. Young & Rubicam, CMF&Z’s previous owner, was itself considering closing the agency when 3i made its offer, which one source described as "next to nothing."

Failure to find funding

When 3i took over CMF&Z, it cut jobs at the agency, but most clients stayed. Bisceglia intended to recapitalize the agency with cash from a private equity firm, but the funding never materialized.

This failure to secure funding, a common occurrence in the sluggish b-to-b market, doomed CMF&Z, insiders say. Primus Venture Partners, a Mayfield Hills, Ohio, venture capital firm, considered backing 3i but eventually declined. "It’s an area we had interest in," said Phil Molner, a principal with Primus.

Bisceglia made the decision to shutter CMF&Z in September, a month when it was reported that the agency lost two key clients: Alliant Energy and John Deere Capital. By then, even though CMF&Z was profitable on paper, it had become apparent that the agency’s cash flow couldn’t keep pace with the debt load, Bisceglia said. He opted to liquidate CMF&Z’s assets, creating significant bitterness toward him among management and the approximately 50 employees who lost their jobs, sources said.

"They’re pissed off," Bisceglia acknowledged. "They’re not getting compensated for [unused] vacation time or any severance pay." He said he is facing lawsuits from angry former CMF&Z employees. "Unfortunately, they’re wasting their money on attorneys," he said. "There are no assets."

What money 3i gained from selling CMF&Z’s assets went to pay off the holding company’s secured lender, Bisceglia said. The main asset sold was Bridgepoint, a CMF&Z subsidiary specializing in channel marketing, which was acquired by Chicago-based Prospect Partners L.L.C., sources confirmed.

Richard Lorenz and Pankaj Manga are currently running Bridgepoint, which has offices in Hiawatha, Iowa. "Bridgepoint is open for business; we have retained our clients and all of our employees," Manga said.

Searching for capital

Bisceglia had originally hoped to buy five or six agencies by the end of this year. But, with the brutal b-to-b advertising market and the fallout from last year’s terrorist attacks, Bisceglia has been unable to secure funding for 3i acquisitions.

Dan Weinfurter, CEO of Chicago-based Parson Consulting and a member of 3i’s advisory board, said he believes Bisceglia’s track record will enable him to find the backing to make more acquisitions. Bisceglia built TFA Communications L.L.C., a technology marketing communications firm, and sold it to Leo Burnett Co. in 1998.

"They’ll get the funding that they need, even though it may be more expensive than they’d like it to be," Weinfurter said.

Bisceglia said 3i will focus first on agencies specializing in transportation or chemical industry clients. "We have a number of agencies in the pipeline," he said. He won’t speak formally with any agencies, he explained, until he is certain that a private equity firm is on board.

As Bisceglia courts venture capital, he is also "re-staging" his management team with an executive the company plans to name in the coming weeks. Bisceglia said that among the lessons he has learned from CMF&Z’s demise is: "All assets we buy in the future will be healthy."

The super-agency model

Marsteller Inc., a large national agency that focused on b-to-b, thrived in the 1960s and 1970s. Others—including Maxcomm and Earle Palmer Brown in the 1990s—have tried to build networks of smaller, b-to-b focused agencies without much success.

Yet many leaders in the b-to-b advertising industry remain convinced that a nationwide brand could thrive in the market.

Pete Kovac, president-CEO of NKH&W, Kansas City, Mo., said he has hired an executive with 15 years of experience in agency mergers and acquisitions. Although Kovac declined to detail his intentions, he said, "That’s a clue as to what we might have planned."

Rick Segal, chairman of HSR Business-to-Business, speaks openly about his belief that a larger b-to-b agency or network is a niche that could successfully be filled. But with CMF&Z’s disappearance, Segal is uncertain that 3i is the company that will fill this void.

"My view is that Bisceglia is, regrettably, something of a failed visionary right now in that his approach to the CMF&Z situation was that which any seller fears most," Segal said. "We’re in a small industry, and word gets around."

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